Under Illinois law described in 2015, how were motor-vehicle sales and leases longer than one year taxed?

Plain-English summary

A Chicago consumer asked what sales and use tax would apply before signing a vehicle lease. IDOR separated an outright sale from a lease and cautioned that its answer covered only taxes the Department administered.

For a vehicle sale, the 2015 letter said the rate depended on the tax imposed on the retailer where the sale occurred. It listed the 6.25% State rate and then-applicable Department-administered regional and local additions. A vehicle registered in Chicago could also trigger the City's Department-administered Home Rule Municipal Use Tax, while other locally administered vehicle taxes required inquiry to the relevant local government.

For a lease longer than one year, the letter said Illinois did not tax the lease receipts under Department-administered taxes. The lessor was treated as the end user and owed Use Tax on the property. If the lease required the lessee to reimburse that cost, the obligation came from the private contract, not Illinois tax law. Short-term automobile rentals of one year or less were subject to a separate renting tax.

The letter also noted that a leasing company or dealer could collect separately administered local lease taxes, including a Chicago tax, and directed the taxpayer to the local government for details.

What this means for you

This is historical 2015 guidance. It shows why a vehicle lease quote may include tax-related charges even when Illinois did not directly tax long-term lease receipts: the lessor's tax cost could be passed through by contract, and separate local taxes could apply.

Common questions

Did Illinois tax receipts from a vehicle lease longer than one year? Not under the Department-administered taxes described in this letter.

Who owed tax on the leased vehicle? The lessor, as the end user.

Why might the lessee still pay a tax-related amount? The lease could contractually require reimbursement of the lessor's tax cost, and a separate local lease tax could apply.

Citations and references

• 86 Ill. Adm. Code 130.101(b), 320.101(a), 630.101(a), and 370.101(a).
• 35 ILCS 155/1 et seq.; 86 Ill. Adm. Code 180.101.
• 86 Ill. Adm. Code 130.220.
• Public Act 98-628.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0047-gil.pdf

Original ruling text

ST 15-0047 GIL — 07/23/2015 - MOTOR VEHICLES

The Retailers’ Occupation Tax rate charged on the sale of a motor vehicle in Illinois
depends on the rate of tax imposed on the retailer where the sale occurs. See 86 Ill. Adm.
Code 130.101(b), 86 Ill. Adm. Code 320.101(a), 86 Ill. Adm. Code 630.101(a), and 86
Ill. Adm. Code 370.101(a). For State-administered tax purposes, sales and use taxes do
not apply to lease receipts. The one exception is the short-term rental of automobiles.
(This is a GIL.)

July 23, 2015

Dear Ms. XXXX:

This letter is in response to your inquiry to the Attorney General’s Office dated May 5,
2015 which was received by the Department on June 2, 2015, in which you request information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs’”) are issued by
the Department in response to specific taxpayer inquiries concerning the application of a tax
statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to
the taxpayer who is the subject of the request for ruling, and only to the extent the facts recited in
the PLR are correct and complete. Persons seeking PLRs must comply with the procedures for
PLRs found in the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a
General Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not a
statement of Department policy and is not binding on the Department. See 2 Ill. Adm. Code
1200.120. You may access our website at www.tax.illinois.gov to review regulations, letter
rulings and other types of information relevant to your inquiry.

The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:

I was sent here after calling 311 and speaking to someone in the Attorney
General’s office, but I’m not sure if this is the correct place for my question.

I am leasing a vehicle in Chicago, and I have researched the rates for both
sales and use taxes extensively. However, I have consistently received conflicting
information from the IL Dept of Revenue, the DMV, the City of Chicago, the
Chicago Automobile Trade Association, and several Chicago-area YYYY
dealerships.

I do not want to sign a lease until [am SURE of the sales and use tax rates

for my home address. What are the current rates of these taxes for a vehicle
lease?

DEPARTMENT?’S RESPONSE:

This letter addresses only those taxes that the Illinois Department of Revenue
administers. For taxes administered by a unit of local government, please contact that unit of
local government directly.

Sale of a Motor Vehicle:

The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail to purchasers for use or
consumption. See 86 II]. Adm. Code 130.101. In Illinois, Use Tax is imposed on the privilege of
using, in this State, any kind of tangible personal property that is purchased anywhere at retail
from a retailer. See 86 Ill. Adm. Code 150.101. These taxes comprise what is commonly known
as "sales" tax in Illinois.

The sales tax rate charged on the sale of a motor vehicle in Illinois depends on the rate of
tax imposed on the retailer where the sale occurs. In many locations in Illinois, the sales tax rate
on the sale of a motor vehicle is 6.25%. See 86 Ill. Adm. Code 130.101(b). However, in addition
to the State’s 6.25% rate, the following local sales taxes administered by the Illinois Department
of Revenue are also imposed on the sale of a motor vehicle:

e Regional Transportation Authority Retailers’ Occupation Tax (RTA sales tax) (70 ILCS
3615/4.03(e) and 86 Ill. Adm. Code 320.101(a)), with a rate of 1% for sales in Cook
County and 0.75% for sales in DuPage, Kane, Lake, McHenry, and Will Counties,

e County Water Commission Retailers’ Occupation Tax (generally DuPage County) (70
ILCS 3620/4(b) and 86 Ill. Adm. Code 630.101(a)), with a rate of 0.25%, and

e Metro-East Mass Transit District Retailers’ Occupation Tax (70 ILCS 3610/5.01(b) and
(d-6), and 86 Ill. Adm. Code 370.101(a)), with a rate of 0.25% (plus, in St. Clair County,
an additional fee of $20 or 0.5%, whichever is less).

You may determine the sales tax rate for a given motor vehicle dealer by using the Tax
Rate Database found on the Department’s website at www.tax.illinois.gov. If you click on the
“Tax Rate Database” on the left side of the home screen, and then “Sales Tax”, and then “Use
The Tax Rate Finder” you can choose the municipality in which the dealership is located to
determine the sales tax rate on vehicles in that municipality.

In addition, if the motor vehicle is purchased from a retailer in Cook, DuPage, Kane,
Lake, McHenry, or Will County and it will be registered to an address in Chicago, the retailer is
also required to collect a 1.25% Home Rule Municipal Use Tax imposed by the City of Chicago
and administered by the Illinois Department of Revenue.

In addition to these taxes administered by the Illinois Department of Revenue, Cook
County and municipalities other than Chicago are authorized to impose their own Use Tax on

motor vehicles registered to an address within Cook County or the municipality. For information
on these taxes, you would need to contact the local governments where the vehicle will be
registered.

Lease of a Motor Vehicle:

With respect to leases, it is important to understand that the State of Illinois does not
impose a tax on the lease of a motor vehicle for a term of more than one year (the lease or rental
of an automobile for a term of one year or less is subject to the Automobile Renting Occupation
and Use Tax. See 35 ILCS 155/1 et seq. and 86 Ill. Adm. Code 180.101). Consequently, with
respect to Department-administered taxes, lessees of motor vehicles for a term of more than one
year incur no tax liability. Lessors of motor vehicles for a term of more than one year in Illinois
are deemed end users of the property to be leased. See 86 Ill. Adm. Code 130.220. As end users
of the property located in Illinois, lessors owe Use Tax on the selling price of such property.
However, it is typical of such leases to contain contractual provisions stating that the lessees will
reimburse the lessors for their tax costs. This is not a matter of Illinois tax law but of private
agreement between lessors and lessees. If the lessee agrees to such provisions, he or she is bound
to satisfy that duty because of a contractual agreement, not because of Illinois tax law. We note
that, effective January 1, 2015, Public Act 98-628 changed the definition of “selling price” for
qualifying motor vehicles sold for the purpose of being leased for a defined period that exceeds
one year so that the taxable selling price is the amount paid under the lease contract rather than
the amount that the leasing company pays to the motor vehicle dealer to purchase the car.

In addition, as part of the lease contract, the leasing company may require the motor
vehicle dealer facilitating the lease to collect various local use or lease taxes before a vehicle
may be leased. The City of Chicago, for example, imposes and administers a tax on leases that
the dealer may be required to collect from you. Please contact Chicago for information on this
tax.

Finally, you may want to contact the leasing company to determine what taxes you will
be asked to pay or reimburse upon entering into a vehicle lease of more than one year.

I hope this information is helpful. If you require additional information, please visit our
website at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at
(217) 782-3336. ]

Sincerely,

Samuel J. Moore
Associate Counsel

SJM:mdb

Cc: NAME, Office of the Attorney General, Consumer Protection Division